Latest / The Buyout Show with Fexingo: Private Equity, Roll-Ups, and Business Acquisitions / How Private Equity Is Buying Up Veterinary Clinics
Transcript
- Lucas: So Luna, I was at the dog park this weekend — the usual chaos — and I got to talking with a neighbor who happens to be a vet. She mentioned her practice was just bought by a private equity firm. And I thought, we've done episodes on dental, on physical therapy, on auto repair — but we haven't touched the vet space yet. Luna: Really? That's a good one. I mean, I've heard of like VCA and Banfield, but I had no idea it went beyond the big chains. Lucas: Oh, it goes way deeper. So here's the stat that got me: in the U.S., there are about twenty-five thousand veterinary clinics, and some estimates say nearly a third of them are now owned by corporations or private equity groups. That's up from maybe five percent in the mid-2000s. Luna: Wow, that's a massive shift. And I guess it makes sense — people love their pets and will spend whatever it takes. Lucas: Exactly. And that's the core thesis. Pet spending has been growing steadily — it's now over a hundred billion dollars a year in the U.S. — and it's pretty recession-resistant. People cut back on lots of things, but they'll still spring for the vet visit for Fido. Luna: So it's like the human healthcare model, but with fur and four legs. Lucas: Right. And what makes it particularly attractive to private equity is the fragmentation. The vast majority of clinics are still independent, often single-doctor operations. That's the classic roll-up setup — buy up a bunch of small practices, consolidate back-office, negotiate better prices on supplies, and eventually sell the whole platform to a strategic buyer or a larger PE fund. Luna: And I have to admit, my own vet just sold to one of those corporate groups. I remember they sent a letter saying the same doctors would stay, nothing would change. But I've noticed the prices have crept up a little. Lucas: That's the classic pitch, and it's often true initially — the earn-out structures keep the vet on for a few years to smooth the transition. But when the earn-out period ends, that's when things can shift. The new owners might push for more revenue per visit, add wellness plans, or even raise prices. Luna: So it's like the private equity playbook we've seen in other industries, but with a twist — the vets themselves are the hardest part to replace, right? I mean, you can't just slot in a new doctor like you might a new clinic manager. Lucas: That's the key difference. In a dental practice, you also need a dentist, but there are more of them. Vets are in short supply — there's a well-documented shortage, especially in rural areas. So the practice is only as valuable as its vet. If the vet leaves, the clients often follow. Luna: So the earn-out is even more critical here than in other industries. Lucas: Absolutely. The typical deal structure involves a purchase price based on a multiple of earnings before interest, taxes, depreciation, and amortization — you know, EBITDA. For a small practice, that might be three to five times EBITDA. But a big chunk of that is often contingent on the vet staying for three to five years and hitting certain revenue targets. Luna: And what kind of multiples are we talking for the big roll-ups? I've heard of some pretty eye-popping valuations. Lucas: The bigger platforms are trading at eight to twelve times EBITDA now. And that's driven by a wave of consolidation among the top players. You've got names like Compassion-First, which is backed by JPMorgan's private equity arm; National Veterinary Associates, which is backed by KKR; and Mars — yes, the candy company — owns Banfield and VCA. Luna: Mars? That's wild. And so these firms are competing to gobble up every independent clinic they can find. Lucas: Right. And it's not just the big guys. There are dozens of mid-sized roll-ups targeting specific regions or niches — like mobile vets, or emergency and specialty hospitals. These are higher-margin, higher-growth segments, so they command even higher multiples. Luna: So, as a pet owner, what does this mean for me? Am I going to see worse care, longer waits, or just higher bills? Lucas: That's the million-dollar question. The optimists argue that consolidation brings better equipment, more specialists, and more consistent quality. The pessimists point to research that suggests corporate-owned clinics tend to recommend more tests and procedures, and that vets report feeling pressure to meet revenue targets. Luna: Yeah, I've heard that. A vet friend of mine once said she left a corporate clinic because they wanted her to push a certain number of dental cleanings per week. Lucas: And there's been some backlash. The FTC has actually started looking into these roll-ups — there was a hearing last year about whether the consolidation is reducing competition in certain markets. A few deals have even been challenged. Luna: So it's not just a feel-good story — there's actual antitrust scrutiny now. Lucas: Exactly. And that's part of what makes this a fascinating space to watch. We're seeing the same pattern as in human healthcare — consolidation, then pushback, then regulation. But there's another dynamic too: some independent vets are fighting back by forming co-ops or joining networks that give them negotiating power without selling out. Luna: Like a union for vet clinics? Lucas: Sort of. They share best practices, negotiate group purchasing, but they keep ownership local. It's a way to get some of the benefits of scale without giving up control. Luna: Huh. And do you think that'll be enough to hold off the PE wave? Lucas: Honestly, it's an uphill battle. The private equity firms have deep pockets and a proven playbook. But the vet shortage might actually work in the independents' favor. There simply aren't enough vets to go around, so the clinics that can offer a better culture or more autonomy might attract the best talent. Luna: That's a good point. And it's a good reminder that these deals aren't just about money — they're about people, and in this case, animals. Lucas: And that's exactly why I wanted to talk about this. It touches all of us who've ever had a pet. So if you're a pet owner, next time you're at the vet, you might ask who actually owns the practice. It's a good conversation starter. Luna: And if you're a vet listening, we'd love to hear your story. But before we get to that, Lucas, I know we've talked about this before, but our listeners have been incredibly supportive in keeping this show going. Lucas: Yeah, it's something we don't bring up often, but it's true. This podcast runs without ads, and that's thanks to listeners who chip in a few bucks a month. If these conversations have helped you think differently about your business or your investments, and you want to see more, you can support us at buy me a coffee dot com slash fexingo. Luna: It's a small gesture that makes a big difference for us. And every little bit helps us keep digging into stories like this one. Lucas: Alright, back to the dogs and cats. So what do you think the next move is for these PE firms? Do they keep rolling up, or is there a limit? Luna: I mean, at some point, the market gets saturated, right? There are only so many independent clinics to buy. Lucas: That's true, but they're already expanding into adjacent areas — pet insurance, online pharmacy, even telemedicine for pets. The goal is to own the entire ecosystem, not just the clinic. Luna: So the real endgame is to become the Amazon of pet care. Lucas: You said it. And if that happens, the next generation of pet owners might not remember a time when their vet clinic was a small local business. That's a big shift, and it's happening faster than most people realize. Luna: Well, I know I'll be paying a little more attention next time I'm at the vet. And I might just ask my vet how she feels about being part of a big company now. Lucas: Do that. And if she's got a story, we'd love to hear it. Thanks for listening, everyone. We'll see you next time.